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Buy-to-let demand to increase due to smaller households, says ARLA

A look in to the future of housing in Britain shows that a heavily increasing number of smaller households, and two dangerous extremes will drive the need for buy-to-let investment in the private rented sector and for social housing.

Speakers at the annual conference of the Association of Residential Letting Agents in London say that the rate of growth in actual households will exceed population growth.

More disturbingly, the majority of the elderly will fail to provide for their own housing needs and a growing number of children living in unfit housing will face a blighted future.

This bleak outlook for British housing need was forecast in a joint presentation given by a leading mortgage lender and a major property services group active in social housing.

John Heron, managing director of specialist buy-to-let lender Paragon Mortgages, told delegates that already a high proportion of non-homeowners felt that not owning a property by the age of 30 was no cause for concern.

He pointed out that half of these households choose not to buy, so as to enable them to make different lifestyle choices.

Heron says that housing completions are at historic lows relative to need, social housing completions are woefully inadequate and the housing stock is aging.

Heron says: This is in the face of growing demand caused by net immigration of an estimated 145,000 a year, smaller household iszes leading to proportionally more households than population growth would have required in the past. Other demographic forces driving up household growth include later marriage, more divorce, more students and increased labour mobility.

Housing will become an even more scarce response and owning your own home will be much less common than it is today. This will require a much greater role for a private rented sector that has grown up and moved on. Long term strategic planning in the rental market will be vital to the future provision of housing in the UK.

Heron adds: It will lead to sustained growth in buy-to-let as housing policies neutralise the balance between home ownership and renting, social housing policies decline and other assets perform more variably.

Looking at the future from the social perspective, Nick Medhurst, chief executive of Orchard & Shipman, says: The growth in the number of single person households will force increasing numbers of elderly into rented social housing.

Medhurst says that projections show that nearly four million new dwellings will be needed in the next fifteen years. More dramatically still, in three quarters of all these homes the head of the household will be over 55.

Medhurst adds: With the inadequacy of pension provision and increasing life expectancy we are going to experience far more older people, many of them single, dependent on the welfare state and social housing.

He expects solutions to include retirement homes for rent and equity release schemes, social housing. He says: These are all activities where letting agents and buy-to-let investors could and should be involved.

The ARLA delegates were reminded that Shelter reports that over 140,000 children in the South East alone are having their futures blighted by cramped unfit and emergency housing that damages their health and education and blights their future. The UK ranks 11 out of 15 European states for child poverty.

Medhurst adds: Currently, social housing is the pariah of residential property investment. This is despite the fact that investment in social housing particularly to house the young and the old can be achieved better returns than most buy-to-let investors are achieving and at the same time contribute to the social good.

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